2021 Volume 29 Issue 1 Pages 33-52
The purpose of this research is to make it clear whether the following two earnings adjustment actions were performed by the consolidated group companies which adopted the newly created consolidated tax system. One is the possibility that the companies applied the consolidated tax system for the purpose of reducing tax cost when the parent companies had tax loss. The other is the possibility that they tried to adjust the tax expenses after income taxes-deferred to avoid the increase in financial reporting cost in order to suppress the fluctuation of the net income that might occur along with the tax reduction action. As the result of our empirical analyses, it is suggested that the tax system may reduce the tax cost by calculating the income amount and tax loss carryforwards together between parent and subsidiary companies. In addition, it is also suggested that they might increase tax expenses after income taxes-deferred by recording a large amount of valuation allowance in order to suppress the increase in net income associated with tax cost reduction.
